083.2, 3 PR 10-4A Depreciation by two methods; sale of fixed asset Vb Year 1:531

Question

083.2, 3 PR 10-4A Depreciation by two methods; sale of fixed asset Vb Year 1:5315,000 New lithographic equipment, acquired at a cost of $787,500 at the beginning of a fiscal edation expense year, has an estimated useful life of five years and an estimated residual value of $67,500. The manager requested information regarding the effect of alternative methods on the amount of depreciation expense each year. On the basis of the data presented to the manager, the double-declining-balance method was selected. In the first week of the fifth year, the equipment was sold for $115,000 Instructions 1. Determine the annual depreciation expense for each of the estimated five years of use, the accumulated depreciation at the end of each year, and the book value of the equipment at the end of each year by (a) the straight-line method and (b) the Continued)

Explanation / Answer

Q1. Ans

>>Cost of Equipment $ 787,500

>>Esitimated useful life 5 Years

>>Estimated Residual Value $ 67,500

Depreciation by Straight Line Method

Depreciation Per Year = (Cost - Residual Value) / Useful Life

=(787,500 - 67,500)/ 5

= 144,000

Straight line Depcrecition Rate = Depreciation /(Cost - Residual Value)

= 144,000 / ( 787,500 -67,500)

= 20%

Double Declining Balance Method

Double declining depreciation Rate = Straight Line Depreciation Rate X 2

= 20% X 2

= 40%

Depreciation Table for Straigh Line Method

Depreciation table for Double declining Method

Calculation

Q2.Ans Entry for Sale

Q3. Ans Entry for sale

Year Depreciation Expnese Accumulated Depreciation End of Year Book Value End of Year Original Cost 787,500 1 144,000 144,000 643,500 2 144,000 288,000 499,500 3 144,000 432,000 355,500 4 144,000 576,000 211,500 5 144,000 720,000 67,500

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